St. Louis, Missouri-based Brown Shoe Company, Inc ( BWS - Snapshot Report ) recently posted first quarter 2011 adjusted earnings of 16 cents per share, which were above the Zacks Consensus Estimate of 13 cents but missed the year-ago quarter earnings of 26 cents. The better-than-expected results were attributable to higher sales at wholesale division and margin expansion at Famous Footwear unit.

Footwear retailer and wholesaler, Brown Shoe reported that net sales in the quarter climbed 4.5% from the prior-year quarter to $624.6 million. The upside in revenue was attributable to the acquisition of American Sporting Goods Corporation in February.

Segment wise, Famous Footwear sales dropped 5.4% to $342.7 million in the first quarter, due to lower same-store sales (down 3.9%). Revenue at Wholesale division rose 27.1% to $222.1 million but fell 1.7% at Specialty Retail.

During the quarter, gross margin plunged 140 basis points (bps) to 40.0% due to sluggish performance in the Wholesale division (down 190 bps) and Specialty Retail division (down 150 bps) and unfavorable mix shift as compared with the previous year. However, gross margin at Famous Footwear segment jumped 40 bps.

Store Update

During the quarter, Brown Shoe opened 14 new stores and closed 12 underperforming stores. At the end of the quarter, the company had 1112 stores, down from 1134 in the prior-year quarter.

Financial Position

At the end of quarter, the company had cash and cash equivalent of $54.2 million and shareholders’ equity of $419.8 million. At the end of the quarter, Brown Shoe had $212.8 million available under its current revolving credit facility.

Outlook

Based on the first quarter results, the company expects to achieve the lower end of its guidance range for fiscal 2011. Brown Shoe expects revenue to increase in the low double-digit range and earnings per share in the $1.25 to $1.32 range.

Our Take

Brown Shoe expects result to improve in the second half of 2011 due to the strong performance in the first half of 2011 and cost related to the acquisition of American Sporting. Additionally, we remain positive on the stock based on the company’s effort to enhance its brand awareness and attract more customers through marketing and product styling and accretion of 10 cents to 12 cents from the acquisition of American Sporting. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.27 and $1.51, respectively.

Brown Shoe has a Zacks #3 Rank, implying a Hold rating over the short term. We also reiterate our long-term Underperform recommendation on the stock.

One of Brown Shoe’s primary competitors, LaCrosse Footwear Inc ( ) reported a loss of 10 cents in the first quarter of 2011, well below the Zacks Consensus Estimate of earnings of 17 cents.